The economic downturn is already dragging down the online-marketing space, but pure-play mobile ad companies swear they’re not worried about its affect on the wireless Web.
Nielsen Online last month reported a 6% overall decline in “image-based” online ad spending in the first half of 2008, with the number of impressions sliding by 9% during the period. Those figures are likely to swell as the economic uncertainty lingers and markets around the world feel the fallout of the credit crunch.
And the world of mobile advertising is especially vulnerable. As wireless ads evolve from embryonic into their infancy, according to some onlookers, they’re likely to be among the first ad spends to be purged as agencies pull the plug on “experimental” marketing tactics and focus their efforts – and their dollars – toward traditional ad channels.
Meanwhile, publishers and content owners are increasingly taking their wares to wireless as traffic on the mobile Web ramps up. Media companies are building out sophisticated sites in an effort to leverage the new wave of high-end, multimedia-friendly devices, and social networking offerings have become white-hot in mobile as Facebook and MySpace users access services on the go and mobile-specific communities gain ground in the footsteps of the big online players.
Bright side of life
So wireless Internet inventory – which is to say, areas on Web pages where ads can be placed – is growing exponentially, the advertising belt-tightening threatens to shrink the number of ads available to fill those spots. But there seems to be no lack of optimism among the mobile players themselves.
“How much new inventory over the last year or so?” asked Paul Palmieri, CEO of Millennial Media. “The answer is a ton. . There’s been an explosion in inventory, and there’s been an explosion in revenue.”
In fact, Palmieri estimates the current worldwide market for mobile display ads is $125 million to $130 million, $100 million of which is new to the game this year. “We’re going to see larger budgets being planned this year,” he said, citing the ability to track the effectiveness of ad campaigns and reach customers more cheaply. “If advertisers cut back spending for other mediums, I think they are going to look at mobile as a path forward.”
Which is not to say that mobile advertising isn’t facing its share of difficulties – or maybe more than its share. A recent Nielsen Mobile poll found that “mobile advertising has not kept pace with the rapid growth of mobile media consumption and ad response rates are flat” in the United States. Mobile ads are present on less than two-thirds of Web site homepage views across “leading mobile” destinations, the market research firm found, and roughly half of those pitches are house ads – messages placed by publishers themselves, not paying advertisers.
“The bottom line is that today, advertisers perceive a lot of risk in mobile advertising” due to three factors, Nielsen Mobile reported. Advertisers don’t realize the reach they can attain with mobile ads, don’t trust the medium, and fear an ecosystem they see as complex and unwieldy. And users aren’t exactly embracing the ads they don’t see: Only 13% of mobile data consumers in the second quarter reported responding to the come-on, up a mere 1% over the number from the year-ago period.
Financial down, others up
It’s worth noting, however, that the financial services sector – which consistently ranks among the top online advertisers – was the primary driver in the dip in overall online ad revenues. Ad spend by financial-service companies dipped more than one-fourth in the first half of 2008 compared to the prior year, according to Nielsen Online, accounting for a staggering $400-plus million decrease in the space.
Meanwhile, two industries that seem to have found success in mobile ramped up their online spends dramatically: The consumers-goods market increased its budgets by nearly a third, the market research firm found, and the automotive industry nearly doubled its online spends, surpassing $300 million.
Recent figures from AdMob appear to refute Nielsen’s findings. The San Mateo, Calif.-based ad network and technology company said ad requests – which occur when a user clicks on an ad – have tripled over the last year, reaching 5.1 billion last month. Perhaps surprisingly, the United States stretched its lead over other markets in terms of growth, increasing market-share by 3.5% as ad requests approached the 2-million mark.
“Inventory is growing rapidly,” said Jason Spero, AdMob’s VP of marketing. “We’re seeing mobile included as a line item in more agencies’ planning budgets than I’ve ever seen before. I don’t know whether it means that (mobile) is being moved out of some experimental budgets, but I think people want to bring mobile to their clients. And I think high-end devices are a big part of it.”
Indeed, Apple Inc.’s iPhone accounted for 103 million AdMob requests last month, ranking fourth among all handsets worldwide. And all those advertisements are translating into very real dollars: The startup has already become cash-flow positive, and executives have hinted that they will use a recent funding round of $15.7 million to grow aggressively and target Google Inc. and Yahoo Inc. as the deep-pocketed Web giants move further into mobile.
Caution urged
But if AdMob and Millennial appear well-positioned to weather the slowdown, the gathering storm is sure to result in choppy waters for many smaller players. Agencies and brands that have already seen success in mobile are likely to increase ad spends even as they tighten belts in other media. Newcomers that have just begun to experiment in wireless, though, may take their toes back out of the water, according to Stephen Burke, SVP of marketing for Mobile Content Networks Inc., a Tokyo-based mobile search firm looking to build on its traction in the Far East and expand to other markets. And that could expedite the inevitable consolidation as outsiders buy their way into mobile and pure-play firms gear up for battle against the newcomers.
“It really hasn’t happened yet, the tap hasn’t run dry, but the impact of the online slowdown is going to be felt in mobile,” said Burke, adding that MCN works with ad networks around the world. “I think what we’ll see is potentially a softening of the various brand pilots that are under way right now from non-mobile brands that have begun to do more mobile advertising but may find themselves rethinking that in the coming months.”
Article modified Oct. 31 to correct Paul Palmieri’s quote regarding fill rates.
